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Ask Justin

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Why aren't Crest personal accounts more popular?

Investment | Shares Helpful? 39

Asked by montresor, submitted 07 April 2010.

Open Quote I understand brokers incur costs to run a nominee account. Why do they not offer Crest member sponsoship and let Crest deal with the administration. I know of only 2 brokers who offer sponsorship and at a resonable cost of £10 a year. Nominee accounts charge more than that.Why do brokers prefer nominee account to Crest sponsorship?

Is it the case that they have control on the investments and earn money running the nominee accounts?

Sponsorship means the investor is the owner of their investments.Whereas in a nominee account the investment is never safe and changing broker can be very expensive depending on the number of holdings. It mystifies me as to the reasons why most brokers avoid the Crest sponsorship route.
End Quote

Answered by Justin on 09 April 2010

For the uninitiated, a quick recap - when you buy shares in a company there are three ways you can normally hold them:

  1. Share Certificates – outdated and the most expensive way to hold and trade shares, but you benefit from your name being held on the company’s share register so you are the registered owner of the stock. While not that practical these days, e.g. you can’t trade online, you qualify for any shareholder perks and are eligible to attend and vote at shareholder meetings. Plus you can sell through whichever stockbroker you choose.
  2. Nominee Accounts – the shares are registered in the name of a stockbroker but you have beneficial ownership of them. This makes trading simpler and cheaper, but you will not be the registered owner. Provided a broker’s nominee account is ring-fenced from their business (it should be) then there should be little extra risk holding shares in this way, although if the broker go bankrupt there’ll probably be a delay in getting your shares back. You won’t receive any shareholder perks or be eligible to vote unless the stockbroker makes special provisions for you to do so.
  3. Crest Personal Member Account – in theory this offers the best of both worlds. You can trade shares electronically and benefit from being the registered owner of the shares. A stockbroker must apply for the account on your behalf and pay a £10 annual fee, which they may pass on to you, perhaps with a mark-up (Killik & Co charges a hefty £100 a year for a Crest Personal Member Account).
Unless a broker charges for their nominee account the only source of revenue I’m aware of is the interest they could earn on dividends from the point they receive them to the point they’re paid into your account. A bigger source of profit is the margin brokers make on customer cash balances, i.e. when you hold cash in your account between trades, and this holds true for both nominee and Crest Personal Member Accounts.

I agree with you, Crest Personal Member Accounts are the most attractive way to hold shares. Why don’t more brokers offer this facility? My guess is that nominee accounts improve their customer retention and are especially convenient because they also allow investment funds to be held. The low cost brokers also probably fear that the annual Crest fee will deter their price conscious customers.

There is also one big fundamental hurdle, HMRC rules require shares within ISAs to be held within a nominee account. So personal Crest accounts are not an option for ISA investors.

Ultimately I believe the success of Crest Personal Member Accounts will need to be driven by customer demand, which doesn’t seem to be there at present (probably through a combination of being happy with nominee accounts and not knowing about Crest personal accounts). Otherwise I doubt we’ll see any mainstream brokers bother with the hassle and expense of setting up the facility for their customers.

I hope we see such demand as the existing market for Crest Personal Membership Accounts needs more competition. Some brokers charge well in excess of the £10 underlying Crest fee and the costs to transfer Crest Personal Membership Account from one stockbroker to another seem little different to nominee accounts - more a case of brokers trying to protect business than a true reflection of underlying costs I suspect. But I’m not holding my breath...

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (2) - To post a comment please register or login .

Comment by nathanl at 11:36am on 20 Apr 2012:

Thanks, this information was pretty much impossible to find anywhere else.

Anybody have any idea on why HMRC require ISAa to be nominee accounts ?

Comment by purfleet at 12:43pm on 02 Aug 2013:

Having worked in stockbrokers since the inception of Crest, CPM accounts are painful to administer.

A bank account has to be linked to the CPM account which creates extra reconciliation, the account has to also be moved when a client changes sponsor.

Separate Crest messages have to be sent daily to reconcile accounts for both stock and cash, separate messages for dividends and Corporate Actions have to be sent for elections and some registrar do not support Crest elections and the client has to revert to paper.

Also standard settlement messages are effectively tripled as stock needs to move from CPM accounts to the sponsor before being delivered to the market.

All in all CPM accounts are quite high touch as in Nominee you have economies of scale - so if we had 1000 clients holding BT in a nominee I send one message to reconcile the balance of the account, or 1000 messages for CPM clients.

When Crest started, CPM’s were seen as a way of converting the shareholder that liked keeping their certificates in a box under their bed - they kept their name on the register but did not have the risk of losing the cert, basically a half way house between certificated and nominee.

I my opinion CPM's are a dying product; they are high touch and do not offer any more benefits than a normal nominee account.